Recycling Infrastructure Development under Extended Producer Responsibility in Developing Economies

Abstract

To tackle the severe pollution caused by electronic waste (e‐waste), several developing countries have introduced e‐waste legislation based on Extended Producer Responsibility (EPR). A major challenge to implement EPR in developing countries is the lack of formal recycling infrastructure. In this paper, we study if a collective form of EPR implementation where producers may jointly invest in recycling facilities can promote their incentives to do so. We develop a Nash bargaining model that captures the decision dynamics underlying joint recycling facility investment. We show that despite its advantage in reducing producers’ fixed investment costs, joint investment in the collective system may lead to a worse recycling infrastructure development outcome than independent investment in an individual system. This can particularly happen when the collective system involves products whose recycling costs are highly differentiated. We further show that cost sharing based on the principle of Individual Producer Responsibility (IPR) may undermine the recycling infrastructure development outcome in the collective system compared to simple proportional cost sharing rules. In practice, it is generally believed that IPR leads to better design incentives than proportional cost sharing rules. Accordingly, our result indicates that there exists a tradeoff between these two cost sharing rules, and promoting recycling infrastructure development via collective systems may come at the expense of design incentives and vice versa.